Abstract this study aims at investigating the relationship between liquidity and profitability of commercial banks in pakistan. The study undertaken has brought in to the light of the following conclusions. Afghanistan international bank aib is one the afghanis commercial banks, its head office in kabul. Washington, deal extensively with interpretation of financial statements. For a quick indication of a businesss financial health in key areas, ratio analysis comes handy. Financial ratios for ratio analysis examples formulas. The term analysis refers to rearrangement and simplification of data given in the financial statement. Financial ratios are widely used to analyze a bank s performance, specifically to gauge and benchmark the bank s level of solvency and liquidity. Several financial performance parameters are used such as financial ratios analysis which is used to measure the financial position for the bank and on broader. Banks, trading and availableforsale securities, non. Pdf this paper uses dynamic panel data methods to examine the determinants of banks performance in the german banking sector. Pdf ratio analysis banking financial statements fahad. If the ratio is in a formula, the slash sign will be used to indicate division.
Financial ratio analysis involves the calculation and comparison of ratios which are derived from the information given in the companys financial statements. A study on financial performance using ratio analysis at ing vysya bank project report submitted to under the guidance of. Gudata 2015 who measures the financial performance of five commercial banks of the period 20072011 using ratio analysis was found that commercial bank of ethiopia stands first in assets. Ratio analysis is used to evaluate various aspects of a companys. A turnover ratio is a measure of the gross benefit, relative to the resources expended. Thus, the limitations of financial statements also form the limitations of the ratio analysis. Ratio analysis includes techniques of calculating and interpreting financial ratios to analyze and monitor firms performance. Impact of liquidity on profitability of commercial banks in pakistan. A component percentage is the ratio of a component of an item to the item. Ratio analysis is the most popular trend to evaluate a bank s performance over years or with other companies in an industry. These ratios share some attributes which are similar to the traditional ratios and have thus been given names that indicate their similarity. In this reading, we introduce you to financial ratios the tool of financial analysis. Bank financial ratio analysis arose in response to this need. Financial ratio analysis compares relationships between financial statement accounts to identify the strengths and weaknesses of a company.
Ratio analysis was applied to analyze and to compare the trends in banking business and financial performance. Leverage ratios tell us how much debt the company is using to make the company run and stay alive. Comparison of two or more years financial data is known as horizontal analysis, or trend analysis. Free management skills books free marketing management books. The stability ratio is used with a vision of the longterm. High growth tide lifted all boats and high revenue high pro. So productivity and profitability analysis is essential for evaluating the banks performance. Ratio analysis as a bank lending tool with abstract, chapter 15, references and questionnaire. Financial ratios will help an investor to get a sufficient understanding of the companys financial status.
When the amount of this ratio is less than 1, the problems with the payment of due liabilities for interest and the need to obtain funds from external sources appear. He found that bank specific variables by large explained the variation in profitability. Ratio analysis is a powerful tool of financial analysis. It is expressed as a percentage of a bank s risk weighted credit exposures. Liquidity analysis using cash flow ratios and traditional. Ratio analysis is a useful management tool that will improve your understanding of financial results and trends over time, and provide key indicators of organizational performance. This type of ratio analysis can be calculated by multiple ways they are as follows. Financial ratios top 28 financial ratios formulas, type. The researcher has mentioned the importance of the banking sector in the economic development of the. A ratio analysis is a quantitative analysis of information contained in a companys financial statements. Indeed, ratio analysis is often criticized on the grounds of subjectivity that is the analyst must pick and choose ratios in order to assess the overall performance of a firm. The use of financial ratios is a timetested method of analyzing a business. A return ratio is a measure of the net benefit, relative to the resources expended. The sixth type of financial ratio analysis is the stability ratio.
Although ratio analysis suffers from a number of limitations as enumerated above, yet it is a very useful and widely used tool of analyzing the financial statements. But a brief knowledge and experience of that how to analyze the financial performance of the firm. Pdf financial ratios analysis in determination of bank. It uses to check whether the company is stable in the long run or not. Financial performance evaluation a case study of awash international bank aib. Thus, the ratio analysis and trend analysis and analysis of cash flow statement show that axis bank. Ratio analysis provides business owners with information on trends within their own company, often called trend or timeseries analysis, and trends within their industry, called industry or crosssectional analysis. Retail banking, project and corporate finance, working capital finance. Further, asset quality of a bank nbfc is also impacted by the state of the economy as a whole. Financial analysis of afghanistan international bank munich. Nov 20, 2019 financial ratio analysis is one of the most popular financial analysis techniques for companies and particularly small companies.
Financial ratios are usually split into seven main categories. Although it may be somewhat unfamiliar to you, financial ratio analysis is neither sophisticated nor complicated. In financial analysis, a ratio is used as a benchmark for evaluation the financial position and performance of a firm. In this article, youll get an overview of how to analyze a bank s financial statements and the key areas of focus for investors who are looking to invest in bank stocks. Objectives of the study to study the profitability of commercial banks with special reference to selected five banks in india. A coverage ratio is a measure of a companys ability to satisfy meet particular obligations.
Banks are a fundamental component of the financial system, and are. These ratios indicate the ease of turning assets into cash. Ratio analysis 1 p a g e introduction a sustainable business and mission requires effective planning and financial management. The main objective of ratio analysis is to use the. It is applied to every bank and credit union in the u. This video helps you to learn calculation of financial ratios with the help of practical example. Interpreting financial statements world bank documents.
A pdf version of a ubpr user guide which allows users to print out formulas for all ubpr concepts. A firms balance sheet and income statement are input to ratio analysis. I would like to submit my report titled financial ratio analysis of the city bank limited prepared as a part of the requirement for bba program of brac business school. The details of the ratios are presented in table 1. Evaluating the financial performance of banks using financial ratios. Financial ratios for the commercial banking industry loyola. The ratings are assigned based on a ratio analysis of the financial statements, combined with onsite examinations made by a designated supervisory regulator. Bank liquidity bank analysis and examination school. Useful conclusions may be arrived at by ratio analysis provided the abovementioned limitations are kept in mind while using the results obtained from ratio analysis. Analysis of financial performance of banks in india jeevan jayant nagarkar email. Project report on ratio analysis of sbi pdf state bank of indiaratio analysis. Pdf financial ratios of major commercial banks researchgate. Ratio analysis formula list ratio analysis formula with. Analysis of financial performance of banks in india.
Basic financial management and ratio analysis for mfis page iii microsave marketled solutions for financial services 3. The historical trends of these ratios can be used to make inferences about a companys financial condition, its operations and its investment attractiveness. An analysis of key banking indicators of these banks will provide an insight into their soundness in terms of capital adequacy, asset quality maintained, profitability, liquidity and efficiency of. Ratios assume a significant part in the management accounting function of any organization. A financial ratio analysis of commercial bank performance in south. A project report on analysis of financial statement of icici bank 1. We show how to incorporate market data and economic data in the analysis and interpretation of financial ratios.
Minor project report on the study of analysis of financial statement of icici bank submitted in the partial fulfillment of required for the award of degree of bachelor of business administration. A financial ratio is a relative magnitude of two financial variables taken from a businesss financial statements, such. A financial ratio is a relative magnitude of two financial variables taken from a businesss financial statements, such as sales, assets, investments and share. This users guide does not present detailed indepth instructions on ratio analysis, nor does it assign particular value to individual ratios or groups of ratios. From the analysis of data it is clear that the public sector banks achieved higher eps and private sector banks achieved lowest eps during the study period. Financial statement and ratio analysis introduction.
Importances of ratio analysis top 8 uses of ratio analysis. A project report on financial performance based on ratios at hdfc bank. I have successfully completed my internship program in the city bank limited and i worked there as an intern for three months. Financial ratios play a central role in the quantitative analysis of commercial banks. Ratio analysis enables the management of banks to identify the causes of the changes in their advances, income, deposits, expenditure, profits and profitability over the period of time and thus helps in. The analysis of key financial performances of banks 3 loans. Ratio examination contains methods of calculating and interpreting financial ratios to analyze and observe a firms performance. Financial ratios for the commercial banking industry do. Determine working capital turnover ratio if, current assets is rs 1,50,000, current liabilities is rs 1,00,000 and cost of goods sold is. In this paper they demonstrate that data envelopment analysis dea can augment the traditional ratio analysis. Ratio analysis involves the construction of ratios using specific elements. The basic inputs to ratio analysis are the firms income statement and balance sheet gitman, 2009. Learn financial ratio analysis in 15 minutes youtube.
A project report on analysis of financial statement of. Managers will use ratio analysis to pinpoint strengths and weaknesses from which strategies and initiatives can be formed. Since all assets have their sources, it is logical that banks balance sheet assets and liabilities must always be balanced. Important balance sheet ratios measure liquidity and solvency a businesss ability to pay its bills as they come due and leverage the extent to which the business is dependent on creditors funding. In last ten years india witnessed two major phases of business cycle. Selecting key financial ratios from a significant number of possibilities however, presents a challenge. This topic was chosen because, ratio analysis is of great importance as far as the information needs of different users in various institutions are concerned for decision making. As a general rule, any analysis should compare the bank to its peer group, consider the banks trends over time, and also be aware of trends and changes in peer group averages. A to z in banking financial ratio analysis with case study. Analysis of roe trends in the six omani commercial banks over the period 1997. Selecting key financial ratios from a significant number of possibilities however, presents a challenge to the analyst, researcher or bank administrator. Ratio analysis as a bank lending tool pdf downlaod. Interestearning assets consist of liquid assets mainly cash and balances with central bank, due from.
It is believed that an adequate amount of this ratio should be greater than 1. Mar 05, 2015 therefore analysis of cash flow statement shows that cash inflow is more than the cash outflow in axis bank. Bank name correlation calculated t table t value null. Impact of liquidity on profitability of commercial banks. Ratio analysis, financial planning and financial analysis the financial statements discussed in chapter 4 provide valuable information about a firms financial and business health. Financial analysis of banking institutions food and agriculture. Profitability analysis of selected public and private banks. The analysis is done by establishing the relationship between the items of the balance sheet and profit and loss account. How to calculate profitability ratios for banks the.
Profitability ratios can tell us how good a company is at making money. Horizontal analysis is facilitated by showing changes between years in both rupees and %age form. Profitability analysis of selected public and private. Jan 18, 2010 ratio analysis is a method or process by which the relationship of items or groups of items in the financial statements are computed, and presented. This research work emphasized on the ratio analysis on. And we show how to interpret financial ratio analysis, warning you. This project of ratio analysis in the production concern is not merely a work of the project. Guide to financial ratios analysis a step by step guide to balance sheet and profit and loss statement analysis. The analysis of key financial performances of banks.
Basic financial management and ratio analysis for mfis toolkit. Asset quality ratios asset quality of a bank nbfc is the cornerstone of its operational efficiency and a direct reflection of its risk management practices and credit appraisal mechanism. A ratio is defined as the indicated quotient of two mathematical expressions and the relationship between two or more things. Abstract business cycles are not new to the indian economy. This study seeks to study the bank lending functions in nigerian banks, with a view to ironing out the factors militating against the attainment of sound lending which contribute in no small measure to the nonrecovery of loans. In financial ratio analysis we select the relevant information primarily the financial statement data and evaluate it. Profitability analysis of selected public and private banks in india. Analysis and interpretation of financial statements help in determining the liquidity position, long term solvency, financial viability and profitability of a firm. Jan 25, 2019 financial ratios are widely used to analyze a banks performance, specifically to gauge and benchmark the banks level of solvency and liquidity. How to calculate profitability ratios for banks these three ratios can give you a good idea of how well a bank uses its resources to generate profits. Ratio analysis is a form of financial statement analysis that is used to obtain a quick indication of a firms financial performance in several key areas. Financial ratios for the commercial banking industry. It is nothing more than simple comparisons between.
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